Tuesday 15 March 2016 by Opinion

Morgan Stanley raises odds of global recession

Morgan Stanley’s research team has raised their probability of a global recession in the next 12 months from 20% to 30%

Coins growing plants in soil

They cited their major concerns as being:

  1. The US Fed losing control of financial markets
  2. Similar loss of ability to control confidence by the ECB in Europe and the BoJ in Japan
  3. Volatile capital flows to and from emerging markets, particularly China
  4. Geopolitical risks in the Middle East and the spread of these issues into Europe
  5. Volatility relating to the Brexit referendum (Brexit is the market’s term for Britain exiting the EU)

As a part of their forecasts, they see interest rates in the US only rising once this year, world economic growth would be 3.0% this year well below the IMF’s forecasts of 3.4%.  These forecasts are in line with FIIG’s expectations for 2016. 

This outlook comes soon after Citi, Goldman Sachs and a host of other global market players have come out with dramatically lower forecasts over the past few weeks.

As we have seen repeatedly over the past two years, bond and equity markets go through a cycle of optimism and fear that results in equity prices rising steadily before correcting and bond yields rising beyond their fair value, before bond prices shoot up again and lower the yields.  We are currently nearing the top of that cycle, that is bond yields are higher than their fair value and this, by our analysis, won’t continue for long.